Thursday, February 23, 2012
Edition 35 (Nov 2011)
PREVIOUS EDITIONS
Editor's letter: The guardians of supply
Two recent stories provide an excellent insight into life on the front line of purchasing in the present climate. Both stories involve UK retailers, but this by no means reduces their significance or relevance to other industries or regions.
In the first, Marks & Spencer asked its top-60 suppliers for a one-off financial contribution to help fund a store revamp and associated marketing campaign. In the second, suppliers to Waitrose reacted furiously to attempts by the food retailer to force through substantial price reductions.
The common theme is, of course, supplier management, but the bigger picture is the suggestion that some organisations are resorting to increasingly aggressive measures in their pursuit of lower costs. There’s nothing wrong with trying to achieve lower costs, but it’s all too easy to focus on short-term results to the detriment of longer-term value – and undermining strategic supplier relations for short-term P&L benefit certainly risks doing that.
At the Procurement Leaders Forum 2010 in Boston, a participant on one of the panel discussions expressed similar concerns, but laid the blame squarely at the door of the CFO, accusing most of being so focused on cost reduction that they ultimately weakened the balance sheet. Leaving aside the technical arguments of how reducing cost can impact the balance sheet, it’s a fascinating theory – would a CFO wantonly damage the balance sheet of their own business? No.
It brings to mind a conversation I had with a CFO who has enjoyed a long and successful career in the oil and gas sector. He says the most important characteristics of a successful CFO are integrity and strength of character – the personality to do the right thing and the strength to stand their ground in the face of intense pressure from other senior executives.
If CFOs are the guardians of their organisation’s finances, CPOs, in contrast, are the guardians of the supply base and the significant value that exists there. Damaging strategic-supplier relations can have significant implications on shareholder value in the long term and it would be ill advised for a CPO of a large public company to allow this to happen.
And this is why strategies employed by the likes of M&S and Waitrose ring alarm bells. While they might be good for short-term P&L performance, they may not be for long-term shareholder value – and that’s what CPOs must protect, regardless of what the CFO or CEO demands.
We have entered the era of paradoxes, when downturns go hand in hand with material scarcity, when equity bears battle with commodity bulls. And for corporate buyers, it's a minefield.
PROCUREMENT FEATURES
- Editor's letter: The guardians of supply
Sun, 20 Nov 2011 14:57:38 - People: Talent retention divides CPO opinion
Sun, 20 Nov 2011 14:57:16 - Roundtable: Procurement and finance
Sun, 20 Nov 2011 13:13:43 - Roundtable: Supplier relationship management
Sun, 20 Nov 2011 13:13:43 - Thought Leaders: Structuring a function for global challenges
Sun, 20 Nov 2011 12:46:56 - Thought Leaders: The search for deeper value in outsourcing
Sun, 20 Nov 2011 12:46:56 - Case Study: Vale
Sun, 20 Nov 2011 12:38:19 - Sustainability: The Sustainable Citizen
Fri, 18 Nov 2011 19:26:58 - Sustainability: Palm oil sourcing is ‘making real progress,’ according to WWF
Fri, 18 Nov 2011 19:26:58 - Special report: services procurement
Fri, 18 Nov 2011 19:26:58
PROCUREMENT OPINIONS
A strong alliance between sales and procurement may seem unlikely, but the benefits, in terms of value-add and wider acceptance, mean it’s a partnership worth developing Deverill's advocate: Continents apart
There is no doubting the huge business and sourcing opportunities Africa has to offer – if you can overcome the logistical challenges, that is Economics: Not all bad
European leaders' failure to deal decisively with the euro crisis, coupled with measures to re-impose border controls, risk making the eurozone a no-go area for international trade
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